Sheep (Ovis aries) are a major source of meat, milk, and fiber in the form of wool and represent a distinct class of animals that have a specialized digestive organ, the rumen, that carries out the initial digestion of plant material. We have developed and analyzed a high-quality reference sheep genome and transcriptomes from 40 different tissues. We identified highly expressed genes encoding keratin cross-linking proteins associated with rumen evolution. We also identified genes involved in lipid metabolism that had been amplified and/or had altered tissue expression patterns. This may be in response to changes in the barrier lipids of the skin, an interaction between lipid metabolism and wool synthesis, and an increased role of volatile fatty acids in ruminants compared with nonruminant animals.